Friday, 29 June 2012

As 4QFY7/12 should be a stronger quarter, we consider Gamuda’s results to be above expectations even though annualised 9MFY7/12 core earnings were just 1% above our forecast (11% above consensus). The key driver was the double-digit construction pretax margin. Our EPS upgrades are due to stronger construction numbers. We trim our target price (10% RNAV discount) for balance sheet adjustments. Gamuda remains a Trading Buy and not an Outperform given the political overhang on the sector. Key catalysts are project wins and progress of MRT 2 & 3.

A qoq doubling of 2QFY10/12 net profit helped to make up for a weak 1Q, enabling 1H earnings to broadly meet our expectations, at 53% of our FY12 forecast. The strong 2Q reflected a moderation of costs due to lower natural rubber (NR) prices and stable output and selling prices.

KLCC Prop’s revelation that it is exploring a change in its corporate structure including a potential REIT is a positive surprise and triggers an upgrade of the stock as a REIT structure would unlock value and narrow the stock’s discount to RNAV. We reduce our target RNAV discount from 40% to 10% as a REIT should help to narrow the discount. This news should provide good support to the share price in the near term. We upgrade the stock from underperform to Trading Buy. It is not an outperform as management has yet to decide to go ahead with a REIT.

US: Unemployment claims hover near yearly high Applications for jobless benefits hovered last week near the highest level of the year, showing continuing weakness in the labor market. Claims for unemployment insurance payments decreased by 6,000 to 386,000 in the week ended June 23. The revised 392,000 claims in the previous week matched the most this year. (Bloomberg) US: Economy grew 1.9% in 1Q2012 on consumer spending The economy grew 1.9% in 1Q2012, reflecting a gain in consumer spending that now shows signs of cooling as the labor market weakens. The revised GDP reading matched the increase previously calculated by the government. Corporate profits were revised to show a drop, the first in more than 3 years. (Bloomberg)Europe: Hollande withholds giving full endorsement of the growth pact French President Francois Hollande said a growth pact is “not enough” and European leaders also need to agree to measures to reduce borrowing costs in countries like Spain and Italy. “We now need to have a stability policy in order to support the countries that took some efforts, but whose efforts didn’t translate” into lower interest rates, Hollande said. He said Italy and Spain are withholding their agreement to the growth pact because “they also needed stability measures to be agreed upon,” he said. (Bloomberg) Europe: IMF may consider Greek loan measures changes after visit An International Monetary Fund team will start negotiating possible changes to the conditions attached to a loan to Greece after a fact-finding mission travels to Athens early next week, a fund spokesman said. (Bloomberg) Europe: Euro-area confidence slumps, German unemployment rises Economic confidence in the euro area slumped to the lowest in more than 2 1/2 years in June and German unemployment increased more than economists forecast, adding to signs the European economy fell into a recession. An index of executive and consumer sentiment in the 17-nation euro area dropped to 89.9 from a revised 90.5 in May. That is the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88m, a separate report showed. (Bloomberg) South Korea: Government announces bigger fiscal response to Europe growth threat South Korea indicated that it is preserving fiscal firepower for worsening economic conditions after Europe’s debt crisis triggered a cut to the nation’s growth forecast. The government’s KRW8.5trn (US$7.4bn) of economic support measures including assistance for small businesses and low-income earners, leaves room for a bigger response if conditions deteriorate, said Choi Sang Mok, a director-general at the finance ministry. (Bloomberg)

Petronas, via its subsidiary Petronas Carigali Canada Ltd, agreed to acquire Progress Energy Resources Corp for about CAD5.5bn (RM17.06bn). The proposed acquisition builds on the previous arrangement between the 2 parties to develop a portion of Progress’ shale assets as well as on the intention to pursue the development of an integrated LNG export facility in western Canada. (Financial Daily)

MRT Corp awarded 2 more viaduct tenders following the meeting of its One-Stop Procurement Committee (OSTC1) in Putrajaya. In a statement, MRT Corp said the OSTC1 awarded Gadang Engineering (M) Sdn Bhd the Package V2, which is for viaduct and associated works from the proposed Kota Damansara station to the proposed Dataran Sunway station. The contract is worth RM863.4m. Package V3 for viaduct and associated works from Dataran Sunway to Section 17 in Petaling Jaya was secured by Mudajaya Corp Bhd. This tender is valued at RM816.2m. (Financial Daily)

The government will initiate a preliminary investigation on the import of steel wire rods from 5 countries – Taiwan, China, Indonesia, South Korea and Turkey. “The government has determined that there was sufficient evidence of dumping, injury and a causal link,” the Ministry of International Trade and Industry (Miti) said. The investigation was initiated following a petition for the imposition of anti-dumping duty on imports of steel wire rods from a domestic producer. (Financial Daily)

Sumatec’s troubled assets Sumatec Resources Bhd will dispose of its entire stake in wholly-owned subsidiary North Malaysia Terminal Sdn Bhd to Aliran Ketara Sdn Bhd. Sumatec had entered into an agreement with Tan Sri Halim Saad, who is linked to Aliran, for the sale of its shipping unit Semua International Sdn Bhd and its subsidiaries. Once the disposal and regularisation has been completed, Sumatec will be left debt free, with RM448.8m cash in hand. In exchange for the sale, Aliran will receive Sumatec shares valued at RM14m. (Financial Daily)

Crest Builder Holdings Bhd’s 51% owned unit Landasan Bayu Sdn Bhd has received a letter of intent from the Malaysian Rubber Board (MRB) to develop a 1.9ha site at the intersection between Jalan Ampang and Jalan Jelatek in Kuala Lumpur into a mixed development with an estimated GDV of RM1.33bn. The proposed development will comprise a 28-storey apartment and SOHO towers, a 33-storey corporate tower and a six-storey boutique retail mall. Work is slated to start in 2013 for completion is 2018. (Financial Daily)

TH Heavy Engineering Bhd, formerly known was Ramunia Bhd, expects to boost its order book over the next 6 months following RM1.5bn worth of tenders it has submitted. MD and CEO Nor Badli Mohd Alias said the company, which is involved in offshore oil and gas fabrication, had jobs worth about RM220m which should last it for the next 12 months. (StarBiz)

Perdana Petroleum Bhd has secured a RM86m contract from Murphy Sabah/Sarawak Oil Co Ltd to supply a vessel to support its 2012 to 2014 shallow water drilling programme. According to the announcement to Bursa Malaysia, the two-year contract is for the supply of one anchor handling tug supply vessel. It includes an extension option for an additional year. (Financial Daily)

Muhibbah Engineering (M) Bhd was surprised by CIMB Bhd’s move to withdraw from backing a restructuring scheme of troubled Asia Petroleum Hub Sdn Bhd (APH), said its MD Mac Han Boon. Mac said CIMB Bank’s withdrawal has brought Muhibbah back to the drawing board to recover at least RM399.5m owed to it for subcontract works performed. Also, the bank’s unexpected move has dashed Muhibbah’s plan to hold an equity stake in APH. (Financial Daily)

Mah Sing is keen on taking part in the development of the Rubber Research Institute of Malaysia (RRI) land measuring 2,200 acres (889ha) in Sungai Buloh, Selangor. “Mah Sing is interested to participate in the tender. It is one of the last pieces of large prime residential and commercial land in Selangor. “We will definitely look into this JV and available land for sale,” said its MD and CEO Tan Sri Leong Hoy Kum. (Financial Daily)

With over RM13.3bn prime Kuala Lumpur real estate, KLCC Property Holding Bhd (KLCCP) could be re-packing the assets under a real estate investment trust (REIT) structure. KLCCP announced its board had instructed management to explore a corporate structure of a REIT in order to optimise shareholder value. The crown jewels of KLCCP are the Petronas Twin Towers and the Suria KLCC mall, which have a fair value of RM6.4bn and RM3.74bn. (Financial Daily)

Parkson Retail Group, a subsidiary of Parkson Holdings (PKS MK, Hold, TP: RM4.85), will invest US$15m (RM47.9m) to open 5 new stores in Indonesia next year, said MD Datuk Alfred Cheng. Cheng said the company was bullish on the Indonesian market as the country’s political stability had provided a strong foundation for the growth of private sector. “Indonesia has been the most attractive country for investors as consumers’ purchasing power has been growing quickly,” he said. (StarBiz)

IJM Corp Bhd (IJM MK, Buy, TP: RM6.36) says the Government had scrapped its plans for a proposed extension of the New Pantai Elevated Highway Extension. However, the company intends to appeal for a reconsideration of the proposal with a revised alignment. IJM was notified of the rejection of the proposal by the Public Private Partnership unit of the Prime Minister’s Department via its indirect wholly-owned subsidiary, New Pantai Expressway Sdn Bhd. (StarBiz)

UMW Oil and Gas Corp Sdn Bhd (UMW-OGC), a unit of UMW Holdings (UMWH MK, Hold, TP: RM9.70) will acquire another jack-up drilling rig to expand its capacity. Its president Rohaizad Darus said UMW always evaluated the market situation especially in the drilling industry. “We just acquired one and are currently looking at the option of buying another drilling rig,” he said. (Financial Daily)

Celcom Axiata Bhd, a unit of Axiata (AXIATA MK, Hold, TP: RM5.22), has signed a pact with Konsortium Transnasional Bhd and Sinar Aki Sdn Bhd for a project that allows passengers on Transnasional express buses to access various wireless broadband services. The project, dubbed 57 coach-mate, will see Sinar Aki installing Celcom's WiFi service on-board 50 Transnasional express buses via 3G SIM Bonding. This service will be available via 850 units of mobile tablets for rental on selected routes. Sinar Aki plans to provide up to 7,200 tablets to cover the entire fleet of 500 Transnasional express buses by end of the year. (Business Times)

We resume coverage on UMW Holdings with a Hold call and target price of RM9.70 based on the sum-of-parts valuation. The Group’s automotive division will remain the key revenue generator as it continues to dominate both the national and non-national car segment. In addition, the O&G division managed to return to black in 1Q12, recording a PBT of RM29.9m supported by additional contributions from Naga 3 and Hakuryu 5 rigs and higher revenue from oilfield products and services. We expect stable earnings for UMW’s equipment and manufacturing & engineering divisions.

Gamuda’s 9MFY12 results came in within both our and consensus expectations, well on track to beat last FY11’s net profit of RM425.4m. Despite its property earnings having gone up since the start of FY12, the annualised pretax profit growth in the segment has slid to 51% in 3QFY12 from 138% in 1QFY12, possibly due to weakening buyer sentiment amid global economic uncertainty. We think that Gamuda would mitigate any further downside risk faced by its property division via faster profit recognition from works on the 81%-completed Northern double-tracking project, which is expected to peak about 2 quarters from now. Maintain HOLD with target price at RM3.53 based on our sum-of-parts valuation.

Thursday, 28 June 2012

The S&P500 is on its major wave 3 downleg. After the sharp decline over the past week, we are looking for a small bounce but the major trend remains down. Crude oil?ˉs crucial support is at US$69. We see positive divergence signs in its daily MACD and RSI indicators, suggesting a tiring downtrend.

The award of a RM278m fabrication contract by Sarawak Shell has broken MMHE's dry spell but is hardly the shot in the arm needed to reverse the order book decline. We expect blazing growth for the sector but MMHE's pace of order book replenishment is far from exciting.

The government.s decision not to go ahead with the NPE extension is a negative surprise and raises questions over the fate of another highway, WCE. WCE.s CA should be inked in the coming months, which should alleviate investors. concern. Further delays are not likely. Our EPS forecasts and target price (10% RNAV discount) for IJM Corp are intact as we did not factor in the NPE. We maintain our Trading Buy call. It is not an Outperform due to the election overhang on the sector. Job wins and the signing of the WCE CA are the key catalysts.

Investors should not be alarmed by the FY1/13 earnings downgrade arising from SapuraKencana.s consolidation method where only 8 1/2 months of Kencana.s earnings will be booked. This is purely an accounting issue and underlying earnings remain robust. Factoring in a lower contribution from Kencana, we cut our FY13 EPS. Despite the earnings reduction, SapuraKencana is still set for a record performance this year. We continue to value the stock at 18.2x CY13 P/E, a 40% premium over our target market P/E. SapuraKencana remains an Outperform and our top pick for oil & gas big caps.

Investors should not be too worried about the civil suit that Meydan LLC has filed against WCT over the completed Dubai race course project. This is just a tactical move and can be contested. A sizeable financial impact on top of WCT.s earlier provisions is not likely. Our target price is still pegged to 30% RNAV discount. During yesterday.s conference call, management reassured us that its chances in the arbitration process are still good. The stock remains a Trading Buy and not an Outperform due to the political overhang on the sector. Potential rerating catalysts are job wins, which could top RM1bn in 2H12.

US: Slowdown concern ebbs on durables, home sales Orders for durable goods and the number of Americans signing contracts to buy an existing home rebounded in May, easing concern the world's largest economy is faltering. Bookings for goods meant to last at least 3 years rose 1.1%, the first increase since February. Pending home sales climbed 5.9% after slumping 5.5% in April. (Bloomberg)

US: Pending sales homes climbed more than forecast More Americans than forecast signed contracts to purchase previously owned homes in May, indicating the real estate industry is firming 3 years after the start of the economic recovery. The index of pending home resales climbed 5.9% to 101.1, matching a 2-year high reached in March, after a 5.5% decline in April. The median forecast of 39 economists surveyed called for a 1.5% gain in May. (Bloomberg)

Europe: Merkel shuts door to euro bonds in rebuff to Rajoy on Spain German Chancellor Angela Merkel shut the door to joint euro-area bonds as a means of lowering Spain's borrowing costs, saying they are the "wrong way" to achieve the greater European integration needed to stem the debt crisis. Speaking three hours after Spanish Prime Minister Mariano Rajoy made a plea for help from European summit, Merkel said that euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically "wrong and counterproductive." (Bloomberg)

Asia Petroleum Hub Sdn Bhd's (APH) bunkering island project is to be tendered out to the highest bidder in an attempt to rescue the project, sources said. It is learnt that the wheels were set in motion in May by APH's receiver and manager PricewaterhouseCoopers (PwC) after a failed attempt to restructure the company which has been taken over by creditors. On Tuesday, CIMB Bank Bhd, which is owed some RM1.01bn by APH, withdrew its support for a restructuring scheme that also included Muhibbah Engineering Bhd. Muhibbah is the main subcontractor for the APH project and has put in work worth RM381m in building a petroleum hub and bunkering facility on a reclaimed island off Tanjong Bin, Johor. (Financial Daily)

Regional cocoa grinder Guan Chong Bhd received the nod from the Singapore Exchange Securities Trading Ltd (SGX) yesterday to display its prospectus for its impending listing on the main board of SGX. MD Brandon Tay said after getting the "clearance to lodge" from the republic's authority, the company can now kick start its global roadshow to garner support from financial institutions. The listing is expected to be completed by 2H2012. Tay said 40-50% of the proceeds will be for capital expenditure. (Financial Daily)

Scomi Group Bhd expects to tender about US$1bn (RM3.19bn) in oil and gas services contracts next year. Group CEO Shah Hakim Zain said the projection was in line with a huge growth expected in Asean's oil and gas services industry. "Y-o-y, the capital expenditure for Malaysia is expected to grow by 16%, while Indonesia is expected to grow by 25%. Thailand and Myanmar on the other hand are expected to grow by 27% each." In the previous quarter, Scomi Group has submitted some US$400m (RM1.28bn) for the bidding of drilling services contracts in the oil and gas industry. This amount represents four contracts coming from Indonesia, Thailand and Myanmar. "There has been an increase in amount of drilling activities in the market and we hope to benefit from this," Shah Hakim said. He expects the announcement of the awards to be announced in the third quarter of this year. (StarBiz)

Digistar Corp Bhd, which transfers its listing status to the Main Board of Bursa Malaysia today from the ACE market, has obtained a licence to install central monitoring systems nationwide for specific public and private sectors. The new business, which is expected to kick-off by the end of this year, will be an important stream of revenue for the company, which currently generates the bulk of its earnings from providing telecommunications, broadcasting engineering and Internet protocol television (IPTV) services to various sectors including health and education. Digistar was expected to make an announcement on the matter soon, sources said. (StarBiz)

Malaysia Steel Works (KL) Bhd (Masteel) signed a RM500m 3-year off-take agreement with Trafigura Pte Ltd, the world's second largest independent trader of bulk and non-ferrous materials. Masteel said the deal would see Trafigura purchase steel billets and steel bars from Masteel over a period of 3 years, commencing from 2H2012. (Financial Daily)

Integrax Bhd hopes to resume talks with Brazilian iron ore giant Vale International SA even though their agreement lapsed two years ago. "We are hoping to re-open negotiations with Vale through the state government," newly-appointed ED Azman Shah Mohd Yusof told. According to chairman Tan Sri Tajol Rosli Ghazali, Integrax intends to help Perak drive Lumut as its new economic capital after the Kinta Valley. Azman explained that the board had hammered out its strategic plan about a month ago and presented it to the state government, who is supportive. (StarBiz)

Kurnia Asia Bhd has not deliberated how it will utilise the RM1.55bn cash proceeds from the disposal of its domestic insurance business, including whether it will declare any special dividend. "After the disposal, Kurnia will become a cash company without any core business. We have 23 months to regularise the operation of Kurnia by the market regulator in accordance to the Bursa Malaysia listing requirement," said CEO Pankaj Kumar. He would not discount the possibility of Kurnia venturing into different economic segment or industry after the divestment. However, he added that the board of directors has not deliberated what they should do with the cash. (Financial Daily)

The proposed acquisition by TSH Resources Bhd of unlisted Pontian United Plantations Bhd (PUPB) is set to create several multi-millionaires among the 200-odd shareholders in the latter, if it is accepted. The proposed exercise, described as a friendly merger, values the whole of PUPB at RM780m. It is being transacted at 14.6 times its average earnings of RM55.6m over the last three years or twice its book value. The chairman of PUPB is Dr Chen Man Hin, the former chairman of DAP, with a 12% stake. TSH acquired some 8% stake in PUPB a few years ago at about RM25 per share. Now, TSH together with the Lee family that owns 12% of PUPB are making a joint offer for the remaining 80% stake or 6.93 million shares in PUPB at RM90 per share, which translates into a total acquisition cost of RM624m. (Financial Daily)

AirAsia X Sir Richard Branson's Virgin Atlantic Airways Ltd is expected to divest its 10% stake in AirAsia X Sdn Bhd to local existing shareholders for more than RM66m (US$21m). This comes as AirAsia X, prepares for listing at the end of this year. AirAsia X is expected to make the announcement on this development in the next few days, said a source. "The stake will be taken up by Aero Ventures [Sdn Bhd] and AirAsia on a pro-rata basis. AirAsia X is a non-core stake to Virgin. All its other [investments] are [in] premium airlines," he said. The executive said after the share sale, several individuals, including Tan Sri Tony Fernandes and his partner Datuk Kamarudin Meranun, will collectively hold 60% of AirAsia X. The remaining 40% will be held by AirAsia Bhd, Japan's Orix Group and Bahrain-based Manara Consortium. (Financial Daily)

Tan Chong Motor Holdings Bhd (TCMH) (TCM MK, Hold, TP RM: 4:16) MD Tan Eng Soon has resigned from his post effective 30 June. In a filing to Bursa, Tan had notified the board that it was time for him to move on. Tan said he would like to step down as group MD and director of TCMH upon the expiry of his employment contract. Meanwhile, ED chairman Datuk Tan Heng Chew will assume the role and responsibilities of group MD and be re-designated executive deputy chairman and group MD effective 1 July. (Star Biz)

Maxis Bhd (MAXIS MK, Hold, TP: RM5.69) signed new strategic partnerships with 14 content providers to deliver the Internet protocol television (IPTV) service in Malaysia. The content partnerships will enable Maxis to deliver on-demand movies and series, including high definition and 3D content as well as seven free-to-air channels to its customers anytime and anywhere. Among the partners are Radio Television Malaysia (RTM), Media Prima Bhd (MPR MK, Hold, TP: RM2.35), Brilliant Pictures, Vision Plus Entertainment Sdn Bhd, Travel Channel International Ltd and All Asia Multimedia Networks FZ-LLC. (Financial Daily)

Axiata's (AXIATA MK, Hold, TP: RM5.22) unit, Celcom Axiata Bhd is optimistic that the newlylaunched Celcom First Voice Plan will help the group expand its subscribers base. CEO Datuk Seri Shazalli Ramly said Celcom currently has about 11 million subscribers. Celcom First Voice offers customers a new experience under Celcom Territory, with new branded features creatively designed to meet their needs. (Business Times)

Malayan Banking Bhd (MAY MK, Hold, TP: RM8.25) had on 25 June disposed of about 53m ordinary Luster Industries Bhd shares of 11 sen each. Maybank said in its filing to the exchange that this had resulted in Maybank's shareholding in Luster to have fallen below 5% of its issued and paid-up capital and as such, Maybank had ceased to be a substantial shareholder of Luster. (StarBiz)

Dubai-based Meydan LLC has filed a civil suit against WCT Bhd (WCT MK, Buy, TP: RM3.20) and its JV partner Arabtec Construction LLC in their long-standing dispute over the construction of Nad Al-Sheba racecourse. Meydan has filed a civil claim of 3.5bn UAE dirham (RM3bn) against the WCT-Arabtec JV. WCT said Meydan has taken the position that the arbitration tribunal brought forward by the JV against it has expired due to "effluxion of time". However, the Dubai International Arbitration Court (DIAC), where the case is being heard, has decided that the claim has not expired due to the effluxion of time. It was reported that the delays on Meydan's part have caused the arbitration to miss the end-2011 deadline for conclusion. (Financial Daily) Comment: This news does not dampen our positive view on WCT's prospects as the company has earlier made provisions for the contract dispute claims. Pending further clarification from the management on this matter, we make no changes to our BUY call on the stock with sum-of-parts derived target price of RM3.20. (Benjamin Lee)